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WASHINGTON — The U.S. government will treat Bitcoin as property for tax purposes, applying rules
it uses to govern stocks and barter transactions, the IRS said in its first substantive ruling on
the issue.

Tuesday’s IRS guidance will provide certainty for investors, along with potential income-tax
liability. Under the ruling, purchasing a $2 cup of coffee with Bitcoins bought for $1 would
trigger $1 in capital gains for the coffee drinker and $2 of income for the coffee shop.

The IRS, faced with a choice of treating Bitcoins like currency or property, chose property.

“The danger is the creation of an electronic black market, similar to the cash economy,” Joshua
Blank, a tax-law professor at New York University, said in a December interview. “That’s what the
IRS wants to avoid.”

The ruling takes effect immediately and covers past and future transactions and tax returns. The
IRS said in the notice that it may offer relief from penalties to people who engaged in
transactions before Tuesday and can show “reasonable cause” for any underpayments or failure to
file.

The ruling comes fewer than three months after Nina Olson, the national taxpayer advocate, said
the IRS should issue guidance to taxpayers on digital currency transactions.